The seed stage is a crucial phase for startups

As it allows them to validate their product-market fit, acquire early customers, and demonstrate traction. However, in recent years, the bar for raising a Series A round has increased significantly, as investors look for more evidence of product differentiation, scalable growth, and unit economics. This means that many seed startups can't get to the next round as quickly as they used to, leading them to seek an extension round from existing investors.

According to Torch Capital founder Jonathan Keidan, 80% of seed-stage companies need an extension round before going after a Series A. He attributes this trend to several factors, such as:

- The proliferation of seed funds and angel investors, which has led to more competition and higher valuations at the seed stage, but also more fragmentation and less alignment among investors.

- The emergence of new sectors and business models, such as crypto, blockchain, social commerce, and creator economy, which require more time and capital to prove their viability and scalability.

- The impact of the COVID-19 pandemic, which has disrupted many industries and markets, forcing startups to pivot, adapt, or delay their plans.

While an extension round can provide some runway and breathing room for seed startups, it also comes with some challenges and trade-offs. For instance:

- An extension round can dilute the founders' and early employees' ownership stake, especially if the valuation is flat or down from the previous round.

- An extension round can signal a lack of momentum or traction to potential Series A investors, who may perceive the startup as struggling or stagnant.

- An extension round can create misalignment or conflict among existing investors, who may have different expectations or interests regarding the startup's direction and strategy.

Therefore, seed startups should carefully weigh the pros and cons of raising an extension round, and consider alternative options, such as:

- Bootstrapping or generating revenue from customers, which can reduce the dependency on external funding and increase the startup's leverage and valuation.

- Applying to accelerators or incubators, which can provide mentorship, network, and exposure to potential Series A investors.

- Partnering with strategic or corporate investors, who can offer access to resources, distribution channels, or customer segments that are relevant to the startup's product or market.

One way that seed startups can stand out from the crowd and increase their chances of raising a successful Series A round is by leveraging deep tech. Deep tech refers to technologies that are based on scientific discoveries or engineering innovations, such as artificial intelligence (AI), biotechnology, nanotechnology, or quantum computing. Deep tech can offer several advantages for startups, such as:

- Creating a strong competitive moat and differentiation, by solving hard problems that are beyond the reach of conventional technologies or incumbents.

- Addressing large and growing market opportunities, by enabling new products or services that can create or disrupt existing industries or sectors.

- Attracting top talent and investors, by appealing to their curiosity, passion, and vision for the future.

Numeri Ventures is a venture capital firm that focuses on investing in deep tech startups at the seed stage. Numeri Ventures believes that deep tech is the key to unlocking the next wave of innovation and value creation in the digital economy. Numeri Ventures helps its portfolio companies by providing:

- Capital: Numeri Ventures invests up to $1 million in each startup at the seed stage, with the possibility of follow-on funding at later stages.

- Expertise: Numeri Ventures has a team of experienced entrepreneurs, operators, and technologists who have deep domain knowledge and insights in various fields of deep tech.

- Network: Numeri Ventures has access to a global network of partners, mentors, advisors, customers, and co-investors who can support and accelerate the growth of its portfolio companies.

Numeri Ventures is looking for ambitious and talented founders who are building deep tech solutions that can transform the world for the better. If you are a seed startup that is using deep tech to outperform industry standards and create positive impact, Numeri Ventures would love to hear from you.